Studies Conflict On Interchange

Merchants and card issuers released separate studies Oct. 1 that made contradictory claims regarding the effect the Durbin Amendment’s interchange cap has had on consumers. The groups timed their releases to coincide with the two-year anniversary of cap’s effective date.

However the Merchant Payment Coalition, a trade group organized to lower debit and credit card interchange, released a study that claimed the cap saved consumers $5.8 billion.

The MPC study was conducted by economist Robert Shapiro, co-founder of Washington-based economics firm Sonecon LLC. Shapiro arrived at the $5.8 billion figure by starting with $8.5 billion, which the Federal Reserve said merchants saved in debit interchange fees in 2012. He then assumed 69% of that figure was passed along to consumers, and 31% was retained by retailers.

“The facts are in and the numbers don’t lie. Debit reform is helping consumers, and both consumers and the economy are big winners,” said MPC Chairman Mallory Duncan, senior vice president and general counsel of the National Retail Federation. “Debit card swipe fees are eating up less of consumers’ purchasing power, and that has yielded significant savings. These are long-term benefits that will steadily boost the U.S. economy.”

Shapiro drew his 69-31 ratio from what he said had been a wide-ranging 2009 study of how merchants behave when they experience a reduction in fixed costs.

“This was an extremely wide-ranging study,” Shapiro told reporters on a press call, describing the 2009 research. “It involved something like 27,000 retail sites and was very detailed.”

Shapiro also said he considered the 69% ratio to be a conservative estimate, and added the study also found retailers were more willing to lower prices to consumers when they perceived fixed price cuts were permanent.

Shapiro also described what he called a perverted outcome of the Fed’s interchange regulation which, he said, made small transactions comparatively expensive.

“Putting an end to the great swipe fee rip-off will make a significant dent in unemployment at a time when every job counts,” said Dave Carpenter, chairman of the National Association of Convenience Stores and president/CEO of convenience store chain J.D. Carpenter Cos. Inc.

Carpenter illustrated the interchange impact by describing a promotional campaign his stores ran this past summer. Large fountain drinks are discounted to 84 cents at certain times of the day or on certain days, he said. The cost to the store for each drink is 40 cents and includes the cup, syrup, carbonated water, lid, straw and ice.

“That leaves us 44 cents for everything else,” he said, “and when interchange runs more than 20 cents per transaction, that doesn’t leave us anything.”

Meanwhile, the EPC updated its existing study, reporting again that merchants prices are not declining under the interchange cap.

“As part of their lobbying tactics, giant retailers promised to lower prices for their customers if Congress passed the Durbin amendment. Two years after implementation, retailers have taken home an $8 billion annual windfall while their customers still aren’t seeing a discount for using debit,” said Sam Fabens, EPC spokesman.

Unlike the approach taken by the merchant research, the EPC researchers collected field research data during 32 shopping trips that were performed at 16 stores nationwide.

Identical products were purchased at each store and compared over a two-year period. The EPC’s findings revealed that some prices,such as the price of milk at a Walgreens in San Francisco, had increased by 30 cents in the last year. Others remained unchanged.